Loblaw cuts 700 head office, administrative jobs

TORONTO • Loblaw Cos. Ltd. made its biggest head office cuts in five years on Tuesday, eliminating 700 jobs as part of its ongoing efforts to streamline the business.

The cuts, equivalent to about 10% of the grocery giant’s head office jobs spread throughout the organization, will affect management and administration staff in Brampton, Ont. The company will take a $60-million charge in the fourth quarter as a result.

The move comes as stiff competition, a sluggish economy and rising food costs have weighed down the performance of Canada’s grocery retailers.

It also could be a positive sign that Loblaw’s vast technology and systems upgrade is well on track. The company’s shares rose 2.5% to $34.72.

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In the past year Loblaw, which said the layoffs were part of a drive to manage costs, has been implementing a vast IT overhaul and reconfiguring its general merchandise assortment to play off its strongest categories, such as its Joe Fresh line of clothing.

Company spokeswoman Julija Hunter said there is some connection between driving efficiency, Loblaw’s layoffs and its final phase this year of the retailer’s vast implementation of SAP enterprise application software and systems. “They are related,” she said in an interview. “It is part of the overall plan of reducing our overall costs [and] reducing administrative layers. It is going to help us eliminate duplication.” At the start of the SAP overhaul in 2009 Loblaw used more than 250 separate systems, whereas a retailer of its size typically has 80 to 90, she said.

Loblaw has also invested in improving the in-store experience amid heightened industry competition, and is spending $40-million this year on “customer-friendly” initiatives such as pricing, store execution and customer service. The company has opened 14 new stores in the past year and added more than 2,000 new jobs.

In the meantime, Walmart has been ramping up its food component as it girds for the arrival of U.S. rival Target to Canada next spring. The company is undertaking 73 building projects this year, 43 of them with a grocery outlet. More than half of Walmart’s 337 stores now include a full grocery store.

The only alternative is to reduce other operating expenses and increase efficiency by using technology instead of labour

Analyst David Hartley of Credit Suisse noted Shoppers Drug Mart, HBC and Tim Hortons also have whittled down the company ranks in a bid to cut costs, but said Loblaw’s move also “may speak to the confidence within the organization surrounding the SAP implementation,” he wrote in a note to clients, predicting the move could boost the retailer’s annual earnings by a minimum of 7¢ to 10¢ per share.

Loblaw has an estimated $400-million in inflated costs in its system, Mr. Hartley added, half of it from depreciation “that should roll off or be redeployed towards revenue-enhancing opportunities in the next three years. Perhaps the announcement of cost savings measures is the first shoe to drop in the process of repatriating lost profitability or growth.”

Grocery margins have been on the decline industry-wide because of wholesale price increases, said Toronto retail consultant Ed Strapagiel, but Canada’s big chains have had a tough time passing those costs on to consumers in a highly competitive retail environment.

“The only alternative [to increasingly tight margins and no retail price hikes] is to reduce other operating expenses and increase efficiency by using technology instead of labour. Putting in new systems and making them work in a very large and complex environment like Loblaw, however, is not without risks. It takes considerable time and investment to get it right.”

Analyst Brian Yarbrough Edward Jones said the layoffs were in line with Loblaw’s strategy. “A lot of the data from the old systems would have had to be input manually and now if there is no need for that there is no need for the employee. It is a part of the company becoming a leaner, more efficient organization. They have been talking about it for five years and finally this is coming to bear fruit.”

In 2007, Ms. Hunter confirmed Loblaw laid 800 off to 1,000 head office employees — about 15% to 20% — as part of a restructuring effort to centralize the business. Loblaw, which has more than more than 1,000 corporate and franchise stores across Canada, has 135,000 full-time and part-time employees.

Active Investor was produced by Postmedia's advertising department in collaboration with iShares by BlackRock to promote awareness of this topic for commercial purposes. Postmedia's editorial departments had no involvement in the creation of this content.

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